Los Angeles City Employees’ Retirement System Board Presentation November 2012 Philadelphia London Hong Kong Rio de Janeiro San Francisco San Diego New York Fort Lauderdale Tel Aviv Tokyo Las Vegas Singapore Agenda • Hamilton Lane Update 1 • LACERS’ Private Equity History 4 • 1H 2012 Performance 10 • Private Equity Market Overview 18 • Appendix 25 Hamilton Lane Update Key Changes During Past 12 Months Employee Ownership • Expanded employee ownership • 67 employee shareholders Offi ces • Las Vegas offi ce opened September 2012 • New geographically focused investment mandate in Nevada Analyst Development Program • 2-year training and development program for top college graduates • First analyst class has 15 participants Awards • 2012 Inc. 500|5000 Fastest Growing Companies Employees and Offi ces 25 50 75 100 150 170 2002 2003 2004 2005 2006 2007 20082009 2010 2011 2012 San Francisco London Tel Aviv Rio de Janeiro San Diego Las Vegas New York Tokyo Ft. Lauderdale Singapore Hong Kong Number of Employees Current number of employees: 192 Page 2 Growth Leads to Opportunity Investment Opportunities GP Meetings Held 440 840 845 327 333 611 2006 2008 2012* 2006 2008 2012* Annual Meetings Attended Funds in Database 375 1,694 1,502 247 839 110 2006 2008 2012* 2006 2008 2012 * Annualized as of July 2012 Source: Hamilton Lane Fund Investment Database (July 2012) Page 3 LACERS Private Equity History LACERS’ Private Equity History • LACERS began investing in Private Equity in 1995 with commitments totaling $26 million to OCM Opportunities Fund I and Welsh,Carson, Anderson & Stowe VII • As of June 30, 2012 LACERS had committed $2.4 billion to 156 partnerships and 84 managers through its private equity program • Core Portfolio accounts for 133 partnerships and 66 managers • Specialized Portfolio is responsible for 23 partnerships and 19 managers • Target PE allocation of 12% - exposure as of June 30, 2012 was approximately 11.7% LACERS’ Aggregate Commitments 3,000 200 12% 180 2,500 HL Hired - 160 2005 9% 140 2,000 8% # of Funds 120 7% 1,500 100 5% 80 (in $ millions)(in $ 1,000 3% 60 40 500 20 - 0 LACERS' Aggregate Commitments $ LACERS' Aggregate Funds Target PE Allocation Activity updated through October 31, 2012 Page 5 LACERS’ Private Equity History • LACERS’ average annual commitment amount since inception is approximately $134.3 million across 9 funds • Between 2006-2011, average annual commitment totaled $220.3 million invested in 13 funds; pre HL $86.5 million average commitment in 6 funds • In 2006-2007, LACERS committed $615.0 million to 42 funds (includes $117.1 million to 14 funds in the Specialized Portfolio); a combination of growth in total plan assets, increased allocation to PE and robust fundraising market • Recent commitment activity has picked up after stepping back in 2009-10 as a result of the GFC which created liquidity concerns for the LACERS’ Portfolio • Goal – to re-establish vintage year diversifi cation • Hamilton Lane commitment modeling projects an annual target of $250-$300 million per year to maintain PE exposure within the target range LACERS’ Commitments 350.0 30 12% 300.0 25 HL Hired - 250.0 2005 9% 20 8% # of Funds 200.0 7% 15 150.0 5% (in $ millions)(in $ 10 100.0 3% 5 50.0 - 0 LACERS' Commitments($) LACERS' Funds (#) Target PE Allocation Activity updated through October 31, 2012 Page 6 HL/LACERS’ Relationship Hamilton Lane is engaged by LACERS in January of 2005 to select new investments, monitor, and provide advice for the alternative portfolio • Hamilton Lane increased commitments and was able to reach the target in 2008 In early 2006, LACERS’ adjusted target exposure to 7% • Average annual commitments in 2005 – 2007 stepped up to $257.1m Hamilton Lane was tasked with increasing the target • This resulted in commitments of $241.0m in 15 funds for 2008 exposure to 8% to be reached in 2009 2009 – LACERS’ becomes over allocated to PE as a result • Hamilton Lane adjusts pacing model and reduces commitments in 2009 and 2010 to of the decline in overall plan value impacted by the GFC maintain allocation at 9%– average $104.2m in fi ve investments per year 2011 – Investment pacing picks up as markets recover • Annual commitments of $256.5m in 12 funds • Commitment Pacing models indicate a range of $250 - $300m to maintain target 2012 – Target Allocation is increased to 12% exposure $350.0 14% 2011: Core and Specialized Portfolio Integration $300.0 12% $250.0 10% $200.0 8% $150.0 6% $100.0 4% $50.0 2% $- 0% 2005 2006 2007 2008 2009 2010 2011 2012 Avg Annual Commitments Commitments Target PE Allocation Page 7 Annual Plan Highlights HL’s initial strategic Increase maximum GFC emphasizes focus Continue focus on plan – assess current commitment size – results on prudent manager manager concentration portfolio and determine in increasing exposure selection; global private to limit number of plan for ongoing portfolio to top groups in order to equity fundraising relationships; selectively construction (increase maintain a concentrated slows considerably and add tactical opportunities buyout exposure targeting core relationship, only LACERS’ commitment across the market (Energy, premier managers and selectively add new pacing scales back. Look Healthcare, Distressed, develop distressed debt managers for attractive distressed Emerging Markets). exposure) opportunities given Integrate Specialized dislocation in markets Portfolio 2005 2006 2007 2008 2009 2010 2011 2012 Increased target exposure Continue to expand Economy recovers, results in additional existing relationships with commitment pacing commitments – allocate strong-performing general increases from prior Current: to large/mega managers partners year. Continue to develop • Develop SMID and Emerging with attractive historical distressed exposure. Market exposure through performance, dilute Reduce venture and mega new relationships with venture capital exposure buyout exposure (maintain relationship with attractive investment top tier managers) opportunities • Update Alternative Investment Policy Page 8 LACERS’ Strategy Evolution In 2005, Hamilton Lane implemented Annual Strategic Plans and included sub-strategy target allocations for further diversifi cation • In 2005, 76% portfolio exposure was buyout; since has been reduced to 68% and is more diversifi ed by size • Portfolio diversifi cation has evolved - increased exposure to mega vs large during 2005-2008 • Emphasis since 2010 has been increased exposure to SMID; bringing down mega exposure • Increased Distressed Debt – more opportunities in troubled markets (US in 2009 and 2010 and Europe in 2011 – current) have made investments in this strategy more attractive • Decreased Venture Capital – returns have proved to be more volatile over time; limit exposure by only targeting best managers • Opportunistically added Secondary and Mezzanine exposure Strategic Diversifi cation by Total Exposure As of June 30, 2005 As of June 30, 2012 SS - Diversified FoF SS - Diversified FoF 1% 4% Venture Capital Venture Capital 18% 14% Large Buyout 19% Large Buyout Secondaries Growth Equity 30% 3% 1% Growth Equity Distressed Debt 6% 2% Distressed Debt 6% Small Buyout Mega Buyout 12% Mezzanine 21% Mega Buyout 1% 4% Small Buyout 8% Mid Buyout Mid Buyout 30% 20% Page 9 1H 2012 Performance 1H 2012 Performance Highlights Portfolio • LACERS’ Portfolio added two new partnerships in the fi rst half of 2012 totaling $55.0 million in commitments • Subsequent to June 30, 2012 the Portfolio added four new investments totaling $80.9 million in commitments • As of June 30, 2012, the Core Portfolio accounts for 92% of total commitments and 90% of total market value Performance • Performance in the 1st half of 2012 was positive as a result of a strong 1st quarter; Q2 2012 was relatively fl at • The Aggregate Portfolio, led by the performance of the Core Portfolio, has a since inception IRR of 10.55% up 17 bps from year end 2011 • The Specialized Portfolio’s since inception return turned positive in the 4th quarter of 2011 and has maintained consistency generating a 1.83% IRR as of June 30, 2012 Cash fl ows • The Aggregate Portfolio had net cash infl ows of $7.2 million over the past fi ve quarters (Q3 2011 – Q3 2012) • Distribution activity over the past two quarters (Q2 and Q3 2012) are the single highest quarterly totals since Q4 2010 Page 11 Commitments 2012 Commitment Activity Commitment Closing Date Partnership Investment Strategy Geographic Focus Amount Core Portfolio 6/21/2012 Coller International Partners VI, L.P. Secondaries Global $25.0 6/29/2012 Advent International GPE VII-B, L.P.* Buyout - Large Global $30.0 8/14/2012 Platinum Equity Capital Partners III, L.P. Buyout - Large North America $25.0 8/15/2012 FIMI Opportunity V, L.P. Buyout- Small Middle East $20.0 9/14/2012 AION Capital Partners Ltd. Special Situation Asia $20.0 10/26/2012 SSG Capital Partners II, L.P. Special Situation Asia $15.9 $135.9 * Existing GP relationship • 2012 commitment activity is diversifi ed by geography spanning North America, Asia, Middle East and other selected regions covered by Global Managers • Added new managers that present attractive opportunities in areas of focus for increased Portfolio exposure – consistent with current investment strategy Page 12 Aggregate Private Equity Portfolio Snapshot Aggregate Portfolio Snapshot1 $ millions 12/31/2011 6/30/2012 Net Change Active Partnerships 154 156 2 Active GP Relationships 83 84 1 Capital Committed2 $2,363.8 $2,417.5 $53.7 Unfunded Commitment $613.0 $567.9 ($45.1) Paid-in Capital $1,834.2 $1,940.5 $106.3 Capital Distributed $1,347.4 $1,458.1 $110.7 Market Value $1,167.7 $1,242.1 $74.4 Total Value Multiple 1.37x 1.39x 0.02x Core Portolio Since Inception IRR 10.88% 11.03% 15 bps Avg Age of Commitments 6.4 years 6.8 years 0.4 years Specialized Portolio Since Inception IRR 0.68% 1.83% 115 bps Avg Age of Commitments 4.7 years 5.2 years 0.5 years Aggregate Since Inception IRR1 10.38% 10.55% 17 bps 1Includes “Core” and “Specialized” private equity portfolios 2The “change” from fourth quarter of 2011 to second quarter of 2012 refl ects the actual commitments made by the Portfolio +/- currency movements in the Portfolio’s existing non-USD denominated funds.